A credit card is a payment tool that can be our friend or foe depending on how well we know how to use it. Many people have a credit card, but very few know how to use it so as to get as many benefits from using it.
A credit card is basically a line of credit that the bank offers you under certain conditions. Depending on the creditworthiness of the client, this type of card can be credited with an amount between 3 and 6 salaries, depending on the bank. The amount granted is called the credit limit.
How much does a credit card cost?
The interest rate for most of the credit cards is anywhere between 10% and 25%. Depending on the card, this interest rate can be applied monthly or yearly. The interest rate percentage is influenced by some factors such as the type of card, whether the company/bank has any special offers, how often you use the card, and your credit history.
The cost of a credit card depends mostly on how often you use it and the type of credit card.
The annual fees for some credit cards would be anywhere between $25 to more than $300 per year. The purpose for which you are planning to use your card and how often you will use it will determine the type of card you get.
Also, there is a monthly “maintenance fee” for some credit cards, which is anywhere between $10 and $15. In general, these types of cards have a lower interest rate. This is the case with prepaid credit cards.
Credit card details
A credit card is a payment instrument also called a shopping card, through which you have access to a line of credit provided by the bank.
The credit card represents a loan, permanently available to the client. The maximum amount that can be obtained with the help of the card is called by the banks – the credit limit. This decreases as the money is used and replenished with the refund.
The card can be used by the customer as he wishes. He can make various payments at stores that accept cards or simply withdraw cash from ATMs.
By its nature, the credit card is, however, a product intended to facilitate payments to merchants and, less, to be used for the purpose of withdrawing cash from ATMs.
What are the extra costs?
In case you spend more than your credit limit allows, you will have to pay a fee on most credit cards.
Late payments are charged a fee, which can be a percentage of 3% to 7% of the total amount owed or a flat rate of $25 to $60 per late payment.
Also, there will be an additional fee for a bounced check when paying your bills, which is around $30 in general.
You can get the money from your credit card in the form of a cash advance if you pay an extra fee.
You can pay off a credit card using another credit card (transfer the balance of one card to another card) for a small extra charge, which is almost 5%.
How can I compare prices?
As everyone has a different spending history and credit score, it is recommended to make phone calls and visits to the bank in order to compare prices. There are many catches in the fine print with some of the credit cards you receive “pre-approved” in the mail or you see advertised.
The best option would be to get a credit card from the bank you are working with if you have a good and long-standing collaboration with this company.
Important things to consider
The credit card is different from the debit card in that you use your money from the debit card, while from the credit card you use the bank’s money, i.e. the credit limit that is provided to you.
Most cards offer you a grace period to pay the amount used. The grace period is the time in which you can fully repay everything you used on your credit card without paying interest. This period is between 25 and 55 days, depending on the bank. During the grace period, the interest does not apply to the amount used, if the previous month you paid the amount used on the credit card in full.
The minimum payment amount is a percentage set by the bank, usually between 5% and 15% of the amount used, which the credit card user must pay each month at term. For the rest of the used amount that is not paid until the due date, the interest is charged, which is higher than in the case of other types of loans.
There are also credit cards that offer you bonuses that are returned to your account every month in the form of money, a percentage of the amount used, or points, which you can use for future purchases.
How can I save money?
If you are not charged an annual fee and you pay your card off in full, your credit card can be free. Make sure you carefully read all the pricing details to understand all the fees and additional charges. Also, in order to avoid a late penalty fee, pay your card off on time.
Your interest rate will be lower if you have a good spending history and a good credit score. The lower your interest rate is, the less money you will have to spend.
You can take advantage of a credit card without any additional fees if you pay off your bills before the interest accrues.
Get a card with no rewards program (meaning with no annual fees) and with the lowest possible interest rate, if you are planning to use it only in case of emergencies.
It is good to have only one credit card, which you can use correctly and to your advantage. If you use several credit cards at the same time, you may not be able to keep track of them and thus exceed the grace periods by accumulating additional costs.
The credit card itself is not good or bad. This attribute is won depending on how we use it; to our advantage or disadvantage. If we use it to benefit from certain discounts and promotions and pay in full the amounts used during the grace period, then it is good, but if we use it to pay the daily expenses or things we consume or services and pay back long after their use and we also pay interest for the amounts used, then it is bad.
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